How is an employee differentiated from a contractor under US law?
What’s the Difference Between an Independent Contractor and an Employee? For the employee, the company withholds income tax, Social Security, and Medicare from wages paid. For the independent contractor, the company does not withhold taxes. Employment and labor laws also do not apply to independent contractors.
When to hire an employee or an independent contractor?
A company must weigh all the factors when determining whether a worker is an employee or an independent contractor. Some factors might indicate that the worker is an employee, while others suggest that the worker is an independent contractor.
How is an independent contractor classified by the IRS?
Independent contractors are often referred to as consultants, entrepreneurs, business owners, freelancers, or as self-employed individuals. They work for a number of different clients at any given time and are not an employee of any particular company. The IRS has established certain test to determine if a worker is a contractor or an employee.
Can a DOL investigation include an independent contractor?
A DOL investigation can include all employees and independent contractors for a three-year period. Employees or former employees can also anonymously report suspected tax fraud (an employer’s intentional failure to withhold taxes) to the IRS by using Form 3949-A as a whistleblower.
What makes an independent contractor a 1099 contractor?
W-2 positions direct employees as to how, when, and where they do a job. Workers who complete tasks or work on individual projects will fall under a 1099. An independent contractor is able to earn a living on his or her own rather than depending on an employer.
How to determine if a worker is an employee or independent contractor?
For federal employment tax purposes, the usual common law rules are applicable to determine if a worker is an independent contractor or an employee. Under the common law, you must examine the relationship between the worker and the business.
When do you need documentation when you hire independent contractors?
When you meet with a prospective IC for the first time, you should have the IC complete an independent contractor questionnaire. Design this questionnaire to elicit the sort of information that will establish that the IC is a separate business entity, not just an employee in IC’s clothing. You’ll want to know:
Can a US company hire a foreign independent contractor?
Hiring the right people can make or break your business. Many companies are seeking talents outside the US, but they are often not aware of legal consequences of cross-border work relationship. I cover legal issues companies should consider when they hire an independent contractor from a foreign country.
How to write an independent contractor ( IC ) agreement?
For tips on drafting an agreement, see Put Your Independent Contractor Agreements in Writing. If you have serious concerns that government agencies might classify the worker as an employee, you probably shouldn’t court trouble by hiring the worker as an IC.